MEASURING CONTAGION BETWEEN ENERGY AND STOCK MARKET DURING FINANCIAL CRISIS: ASYMMETRIC DYNAMICS IN THE CORRELATIONS

Abstract

This paper deals with the study of the Asymmetric Dynamic Conditional Correlation (ADCC) model developed by Cappiello et al. (2006). The A-DCC models carry out better than the non-asymmetric ones. The methodological design is an appropriate multivariate vector and autoregressive exponential GARCH (M-VAR-EGARCH) process which investigate the nature of the volatility and return spillover mechanism across markets. This article examines the dynamic linkages between the stock market and oil price in the US and the Euro-Zone from January 2, 2004 to July 5, 2013. The findings support the existence of a contagion effect during the Greek debt crisis but not the subprime crisis. The correlations between oil prices and stock return of the financial market reveal a certain degree of interdependence among oil market that is lower during the debt crisis.